Monday, Nov. 02, 2009

Military families need tidy finances before deployment

Repeated back-to-back deployments make it imperative that both spouses in military families have the same financial goals and decide how the stay-at-home spouse will hold down the financial fort. And this isn't a conversation to have the night before someone ships out.

Get affairs in order: Make sure your bank and credit accounts are joint accounts so your spouse will have access to your financial accounts and other assets while you're deployed. Update your beneficiary designations on your insurance policies and bank accounts. Make sure you have adequate life insurance. The military offers life insurance through the Servicemembers' Group Life Insurance with a maximum coverage of $400,000. If you have other life insurance policies, check to see if they have a war clause that says the insurer won't pay benefits if you're a casualty of war. Draw up important documents, such as your will, durable power of attorney, medical power of attorney and living will.

Manage extra pay: Review the extra pay you may be receiving, for such things as family separation, imminent danger and hardship. Service members serving in a combat zone may exclude their combat pay from income for federal income tax purposes. That also includes imminent danger and hostile-fire pay as well as military pay earned while hospitalized as a result of wounds, disease or injury incurred in the combat zone.

Establish a budget: So what do you do with the extra money? Have savings equivalent to at least as much as three months of expenses. Many financial planners recommend six months for extra expenses, such as child care. For those serving in combat zones, the military has the Savings Deposit Program, which enables them to deposit all or part of their pay into a savings account up to $10,000 during a single deployment. Interest accrues at an annual rate of 10 percent and compounds quarterly. This isn't a source for money you'll need in the short term because you can withdraw the money only at the end of your deployment.

Watch your credit: Make sure you're current with your bills and paying off or paying down your debt. Having good credit is especially important for military members because bad credit can cause them to lose their security clearance. The Servicemember's Civil Relief Act provides a range of protections for active-duty military members. It's aimed at postponing or suspending certain civil obligations to enable service members to devote full attention to duty. Among other things, the law limits the interest charged to active-duty service members to 6 percent on credit obligations, including credit card debt, incurred prior to military service.

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